How to choose your eCommerce business model

Key Takeaways:

• Before settling on a business model, determine what your customers’ needs and wants are, and how you can solve the problems they have. If your business model doesn’t fulfill their needs or satisfy their wants, it might not be as successful. 

• eCommerce models also depend on the strengths and weaknesses of your business.

• It’s a good idea to take a look at competition before choosing an eCommerce model to make sure you’re delivering the best service to your customers.

Choosing the right business model can be challenging, even for those with experience in eCommerce. Your success depends heavily on choosing the right eCommerce business model; so putting thought and care into your choice is important. There isn’t a one-size-fits-all solution. It’s important to choose the business model that works best for you. 

Determining your ideal business model

You want to keep a few things in mind when choosing a business model. These factors can impact your success, so you need to do your homework and do some planning.

First, get a good idea of your website’s audience. You’ll need to determine what their needs and wants are, and clearly show how you can help them. It’s all about helping your customer get what they need, so you need to keep that in mind in order to be successful.

After considering your audience, think about the products your business sells. What you sell can help you determine the right business model for you. 

Next, take stock of your strengths and weaknesses as a business. Ask yourself what limits your business has, and come up with solutions that make sense for your business model. 

And finally, take a good look at your competition. You want to make sure that your product is the best choice in the eyes of your customers. Otherwise, you risk losing sales to similar businesses. 

Read more: Money Matters: How to make sure your eCommerce works best for your customers

Types of eCommerce business models 

There are several potential business models you can choose based on what you know about your customers and your company. There are pros and cons to each business model, so consider your options carefully. 

1.     Subscription boxes 

Subscription boxes are a business model where customers pay for goods or services on a subscription basis. They are shipped to customers regularly (typically monthly) and contain any number of curated items. 

• Pros: Using the subscription box model allows businesses to better forecast and plan for the future. Keeping track of stock is easier, and profits can be predicted more accurately. 

• Cons: Subscription services typically have a smaller audience base than other business model types. Ensuring your boxes remain at the same initial value can also be difficult when you’re dealing with many different products. Competition in the subscription box sector can also be pretty tough. 

Read more: 10 proven ways to build customer loyalty

2.     Artisans and homemade products

Artisans serve as their own manufacturers, creating the products they sell to consumers. 

• Pros: Artisan businesses are often niche, which can make for less competition once you find a good customer base. 

• Cons: Niche businesses sometimes have a harder time finding enough customers to make the business as profitable as larger companies. If you don’t have competitors to reference, it can also be difficult to determine price points. 

Read more: 8 ways a website can help you attract new customers

3.     Dropshipping 

Businesses that dropship don’t keep any of the products that they sell in stock. Instead, when a customer orders a product, the business then purchases that product from a third party and has it shipped directly to the customer. 

• Pros: Dropshipping is easy to get started with relatively low costs upfront when compared to other business models. It also has the potential to save you some time. You won’t have to worry about warehouses to hold inventory; and shipping is taken care of by the third-party company. 

• Cons: When opting for dropshipping, you lose some of the control you would have with other business models. Shipping times and packaging are chosen by the third-party company you work with. You’ll also have to trust the company you work with when it comes to quality control. 

Read more: What is product sourcing?

4.     White label 

White labeling is a business model where a product or service is produced by one company and then rebranded by another company to make it appear to be their own. This model allows you to brand your products as you want. 

• Pros: White labeling can save you time on manufacturing products and money when it comes to ordering inventory. 

• Cons: Many companies offering white label products have minimum product quantities when ordering, which can present issues if you’re unable to sell that amount of stock. 

5.     Wholesale 

Wholesale involves ordering in bulk from a manufacturer at a reduced price before selling individual products to customers. 

• Pros: Products purchased wholesale often come at a considerable discount, allowing for increased profits when sold individually. 

• Cons: Wholesale business models require a considerable amount of space for storing inventory. Initial investment costs can also be high. If your inventory remains unsold, products can end up taking up too much space, which can mean lower profit margins.  

Read more: What is eCommerce? The basics of selling online

6.     Liquidation

Liquidation is similar to wholesale business models. Businesses source their products from other companies who need to unload stock, either due to bankruptcy or inability to sell the products. 

• Pros: Liquidated products are offered at steep discounts, like wholesale products. 

• Cons: Inability to control the products available to you is risky. Quality can also be a risk when purchasing liquidated products. 

Read more: 5 low-cost ways to delight your customers

7.     Used goods 

If you already spend time at thrift stores and other second-hand markets, used goods may be the way to go. 

• Pros: Retro or collectors’ items can often be sold for higher prices than other products. 

• Cons: One of the main drawbacks of selling used goods is not knowing what products you’ll find to sell. This can cause fluctuations in inventory levels, and take more man-hours than other sourcing methods. 

Read more: eCommerce terms for beginners

8.     Retail arbitrage 

Retail arbitrage involves purchasing products from other retailers (usually chain stores) at a discount before reselling them to your customers. 

• Pros: This business model is efficient for those who live close to chain stores and are able to make multiple trips. Couponing is a good way to save money when finding products. 

• Cons: Retail arbitrage doesn’t allow much product control, as you rely on other stores to provide acceptable products. 

Read more: How to cut small business costs and save money

Determining your eCommerce business models

Finding the right business model can be complicated and typically requires a bit of research. Many businesses determine that the best option is to use multiple business models simultaneously to ensure steady product movement and profit generation. Whatever the case, don’t be afraid to experiment with what works best for you and your business. 

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